Ambiguity Ahead Of AMD’s Q4 Earnings Sweetens A ‘Condor’ Trade - Advanced Micro Devices (NASDAQ:AMD)

Although China's DeepSeek model threatens to disrupt the current paradigm in artificial intelligence, it's just one concern impacting semiconductor giant Advanced Micro Devices Inc AMD. Ahead of the company's critical fourth-quarter earnings report, investors may find more comfort considering a directionally neutral strategy in the form of an iron condor.

Fundamentally, Advanced Micro incurs mixed signals. On the pessimistic end, the DeepSeek cloud continues to hang over the technology sphere. On Monday, semiconductor leader Nvidia Corp. NVDA lost approximately $600 billion in value — translating to NVDA stock slipping 17%. Glaringly, this incident alone demoted Nvidia from being the most valuable company in the world to the third-place spot.

However, according to Melius Research analyst Ben Reitzes, DeepSeek doesn't figure into burgeoning skepticism over AMD stock. The expert downgraded the security from Buy to Hold and the price target from $160 to $129. Primarily, Reitzes anticipates slowing demand for Advanced Micro's graphics processors, and is most recently cautious on the company's x86 servers and PCs.

That's not to say that the entire narrative is conspiring against tech firms because it's not. Earlier Wednesday, Goldman Sachs analyst Peter Oppenheimer stated that recession fears are largely misplaced. With the U.S. economy on solid ground, the analyst believes the DeepSeek selloff is a correction, not the start of a decisively bearish cycle.

To add to the optimistic angle, investor and entrepreneur Cathie Wood bought the dip in AMD stock through her Ark Invest exchange-traded funds. Still, the security finds itself struggling relative to levels posted last week. Additionally, Nvidia and other tech juggernauts are still digesting the DeepSeek impact, warranting a cautious approach.

AMD Stock Doesn't Offer Directional Confidence

From a speculative point of view, it's easy to assume that AMD stock is a dip-buying opportunity. Prior to the DeepSeek headwind, the overall narrative centered on generative AI and the potential of a rising tide lifting all boats. With some questions about the true viability of DeepSeek being raised, AMD looks like a bargain.

However, the issue is that the equity lacks directional confidence. Unlike rival investment NVDA, it's difficult to say that AMD stock carries an upward bias. From a stochastic perspective (devoid of any other context aside from the temporal) and using data over the trailing five years, a position entered at the beginning of the week has a 53.79% chance of rising by the end of it. Unfortunately, the odds decline to 49.81% over a four-week basis.

In contrast, NVDA carries a conspicuously upward bias. On a four-week (stochastic) basis, the chances that a position entered in NVDA will be profitable by the end of it stands at 66.3%.

Also Read: Why Nvidia, Broadcom, Marvell Are This Analyst’s Top AI Bets In ‘Sputnik Moment’

Even when accounting for dynamic conditions, AMD stock doesn't offer much in the way of directional confidence. On Monday, AMD closed at $115.04, implying about a weekly loss of roughly 6%. Whenever the security loses between 5% to 10% during a one-week period, the odds of a long position being profitable over the subsequent four-week period falls to 44.74%.

The only measure of confidence that exists is the magnitude of movement. Over a four-week period under dynamic conditions (i.e. following a large weekly loss), the median positive return stands at 10.71% while the median loss is 6.36%. Under stochastic conditions, the median positive return is 10.67%, while the median loss is 6.75%.

An Iron Condor May be the Ideal Compromise

It would take an incredibly gutsy trader to bet against AMD stock, especially because in the big picture, the underlying enterprise is attractive. Plus, it's difficult to ignore investors like Wood buying the security. Therefore, a long iron condor — which is structurally the combination of a bull call spread and bear put spread — may represent the ideal compromise.

Iron condors are complex transactions and deserve careful consideration and education. But to provide a quick analogy, a long iron condor establishes a north endzone with the bull spread component and a south endzone with the bear spread component. Therefore, it doesn't matter where the ball ends up because the trader is paying the premiums to attack either target — just so long as the ball breaches either profitability threshold.

To put it simply, kinesis is the long iron condor trader's best friend, whereas stasis is the worst enemy.

Based on the earlier market intelligence, statistical trends suggest that AMD stock could potentially rise to over $127 by the options chain expiring Feb. 21. On the other hand, it's also possible that, under a pessimistic scenario, AMD could drop to about $107.

Notably, implied volatility — or the market's expectation of movement — is currently extremely elevated. Investors are expecting high mobility, with only the ultimate destination being the question mark.

With that, the 110P | 113P || 122C | 125C long iron condor, or the combination of the 110/113 bear put spread and the 122/125 bull call spread, arguably could be considered the most aggressive options strategy of its type while still being rational. At time of writing, this transaction risks $235 for the chance to earn a maximum of $65.

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